advice on approaching potential private lenders

Anyone have any advice on approaching private lenders? Particularly, a family member that you may not be real close to…but you know they got some money.

Advice is appreciated.

This is never easy. You’ll never know until you ask though. I have a contractor uncle who said to my face, ‘if you ever need any help let me know’. I went to him with a proposal and needed to borrow 3k, pennies to him. He said he would look it over and get back to me, never returned my call to this day about that deal. Later, I approached another family member about a deal and they gave me a blank check and said write it for however much I need. It was 35k.

Here’s what I’ve learned from those experiences.

  1. You have to make sure you know and sound like you know what you’re talking about. Don’t fumble over you’re words, minimize the “um’s” and “i don’t knows”.
  2. With some random rich guy you hit up for money you may not disclose everything. The opposite should be true w/ your family members. Spell it out, tell them how and when you’re going to pay them back, where the money’s coming from, how much you’re going to make, potential risks and downfalls (they want to know you’ve identified these).
  3. You may have to talk down to their level of understanding. As a REI if I go talk to my parents about vacancy rates, cap rate, internal rate of return, cash on cash, ROI, 2% rule, etc…they’re going to look at me with blank faces. Remember this “a confused mind always says no”, so you need to make it real simple to understand.
  4. Lastly, borrow what you need and maybe a little bit more. If you have to go back to them and ask for more money for the same deal or project it’s going to look like you didn’t have your numbers right in the first place or you don’t have things under control and that will undoubtedly make them nervous.

Good luck.

Good advice. Thanks.

I went ahead and sent him an email detailing what I’d like to do. I attached a word doc, giving a sample investment scenario and showing how the numbers break down along with a breakdown of how much interest he would make.